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Thought Provoker – Employment Status
A large business with more than 2,000 employees decided that it needed to strategically address its market focus. To assist in this process, the company engaged a marketing consultant.The consultant was engaged to complete a specific project in a defined period on a self-employed basis. All payments to him being made with no PAYE income tax or NIC deductions.
The company were impressed with the results and the consultants services were retained. Over several years, he became more ingrained in the business, working regular hours, managing his own team of employees, and eventually elevating to a senior position within the management team.
Some six years after the initial appointment HM Revenue & Customs conducted a PAYE audit and identified an issue with the engagement. The approach HMRC adopted was that in their view the consultant should be treated as always having been an employee.
Initial calculations indicated that this tax treatment would have resulted in arrears of PAYE well into six figures to which interest and penalties would have been added. In addition HMRC were keen to check whether any other individuals had been similarly engaged on a self-employed basis and indeed wanted to carry out a wide-ranging PAYE review on the basis that this issue might illustrate a wider malaise in the tax management of the business.
However, with professional help the company was able to demonstrate to HMRC that the individual had initially been correctly treated as self-employed on appointment and that only as he became more integrated into the business did his status gradually change. Moreover it was agreed that it was not representative of a wider malaise within the business. As a result the overall settlement with HMRC was significantly reduced and the prospect of a wider review by HMRC was averted.
Thought Provoker – Company Car Fuel
Company car drivers can view the provision of private fuel to be a significant and in-expensive perk. However the car fuel scale charge (which applies where private fuel is provided by an employer to a company car driver) can be disproportionately expensive as the following example illustrates.
Assume an employee drives a (petrol) company car which has CO2 emissions exceeding 230 grams per kilometre and that he is a 40% tax-payer. This will result in a fuel benefit in kind of £6,300 and at 40% a real cost to him of £2,520. If we work on the basis that a gallon of petrol costs £5.20 and that the company car completes 35 miles per gallon, then £2,520 would purchase 484 gallons of fuel. This would propel the employee 16,960 miles. It therefore follows that if the employee is travelling less than 16,960 private miles in the tax year that it would be better for him to pay for his own fuel and to claim reimbursement of his business fuel costs.
Removing a car fuel scale charge will also ease employer cost on the basis that the charge will not be reportable on form P11D and the employer will not have a Class 1A National Insurance liability, There will always be a wider range of tax and commercial factors to consider and petrol costs and mileage rates will always vary from employee to employee. Never the less, for a business running a large fleet of fully-expensed company cars, the potential savings for employer and employee can be considerable.